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Ok, you're sold your business and reaped the rewards. Now
it's time to hit the links or buy that boat and set sail
for the Caribbean. Right?
Not so fast. A sudden windfall of cash can pose a series
of dilemmas, particularly in the areas of taxes, investments,
risk management, and retirement planning.
TAXES
As the terms of the sale are outlined, be sure to consider
the liabilities for both capital gains and ordinary income
taxes. If you finance part of the transaction, the installment
sales method of income recognition may help you defer the
payment of taxes. Under this method, you will recognize
gains on the transaction only as the proceeds are received,
not when the sale takes place. You may want to consult your
tax advisor before agreeing to any specific financial arrangement.
If you become a consultant to the buyer, be prepared to
make estimated income tax payments and to track mileage,
home-office deductions, equipment depreciation, and other
deductible expenses.
INVESTMENTS
Did you depend on revenue from your business for living
expenses? You may want to consider seeking an income stream
from your investments. While you may be tempted to split
your windfall between immediate wants such as a new car
and long-term needs such as retirement funding, don't neglect
prepare for your day-to-day income requirements.
RISK MANAGEMENT Now that you can no longer count
on the business for regular income or appreciation in value,
it may be prudent to increase the value of your life insurance
policy. Other types of insurance to consider include medical,
long-term care, and umbrella liability, which will help
provide a higher dollar coverage for the substantial assets
you now own.
RETIREMENT PLANNING
If your business represented a substantial portion of your
retirement assets, be sure to plan for your future retirement
income needs with retirement-oriented vehicles such as variable
annuities and IRAs.
Even though you've sold your business, you may still have
many decisions to make. Careful planning can help reduce
your tax liabilities, ensure that your current income needs
are met, and prepare you for a comfortable retirement.
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